On Tuesday, State Street Corporation (NYSE:STT) experienced a downgrade in its stock rating from "Hold" to "Sell" by CFRA, accompanied by a reduction in its price target from $85.00 to $78.00. The revision was based on the expectation that State Street's shares would underperform relative to the financial sector, with forecasts suggesting only a 3%-4% growth in fee income and a decline in net interest income (NII).
The altered price target reflects a forward price-to-earnings (P/E) ratio of 10.1x, which is slightly below the three-year historical average of 10.8x. State Street's net tangible book value (NTBV) stands at $44.23, leading to a price to NTBV (P/NTBV) of 1.8x, aligning with the three-year average. The stock's beta is 1.5x, and it has seen an approximate 17% increase in share price since last October's low point.
CFRA maintained its earnings per share (EPS) estimates for State Street at $7.70 for 2024, which is slightly below the consensus of $7.75, and $8.30 for 2025, compared to a consensus of $8.44. The firm's more conservative stance is driven by a cautious view on the noninterest income outlook and expectations for moderate growth in assets under management.
A year-over-year comparison reveals that in Q4, State Street's NII, which accounts for 22% of the total net revenue, decreased by 14.3%. However, the NII for the entire year of 2023 showed an increase of 8.5%. Looking ahead to 2024, the company is likely to face challenging NII comparisons, with anticipated lower rates resulting in a 10% year-over-year decrease. The total noninterest income remained flat year-over-year in Q4 2023, with specific areas such as servicing fees, forex trading services, front office software and data, and securities finance experiencing declines.
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